Contents Acknowledgments vii Preface viii 1. Biographical Background and Analytical Analysis 1 2. Influences of the Times: The 1930s 7 3. Leon H. Keyserling and the Council of Economic Advisers 17 Introduction 17 The Employment Act 19 The historical record of the Council, 1946–53 27 The Eisenhower comparison: a brief note 53 The Council, 1946–53: an overview 57 Appendix 1: A Personal Postscript 60 Appendix 2: Keyserling’s Anti-inflationary Policy and Cost Curves: A Simplified Analysis 61 4. Selected Testimonies: Hearings Before the Joint Economic Committee of Congress (HJEC) 64 Introduction 64 The Council years, selected testimony 66 The post Council years, selected testimony 68 Conclusion 80 5. Keyserling after the Council of Economic Advisers: “The Conference on Economic Progress” 82 Introduction 82 A selected review: The Conference on Economic Progress 83 6. Other Writings of Leon H. Keyserling: The Problems of Economic Balance and the End of Poverty – the Crucial Connection 133 The balanced economy and progress of poverty: the vital interdependence 133 v vi Contents 7. The Theoretical Analysis of Leon H. Keyserling and Economic Policy 141 Appendix 1: The Concept of Economic Growth in Economic Analysis 157 Appendix 2: Brief Chronology and Biographical References by Leon H. Keyserling (Edited: W. Robert Brazelton) 160 Appendix 3: Other Related Articles, Not Quoted Herein (But Presented to Author by Leon H. Keyserling) 162 Appendix 4: Book-Length Publications of Leon H. Keyserling 166 (Conference on Economic Progress) Notes 168 Bibliography 169 Index 177 Acknowledgments The author wishes to thank Dr Benjamin Zobrist, former Director of the Harry S. Truman Library, a Presidential Library, for financial support for the original study of Keyserling and the economic policies of the Truman era. The author also wishes to thank Dennis Bilger and others of the Harry S. Truman Library, Independence, Missouri, USA, for their aid, patience, and cooperation. Any acknowledgement would be incomplete without a special mention of Dr Willadee Gillan Wehmeyer who worked with me on the original report to the Truman Library on the research project financed by that Library. That project included both an analytical biography of both Leon Hirsch Keyserling and, also, his wife – a respected economist and “feminist” in her own right – Mary Dublin Keyserling entitled: Leon H. Keyserling and Mary Dublin Keyserling, Growth and Equity: Over Fifty Years of Economic Policy and Analysis, from Truman to Bush, 1989, Truman Library, Independence, Missouri, USA. Special thanks go to both Leon Keyserling and Mary Keyserling. Their cooperation was crucial, and the association with them is a bright spot in my memory. Thanks, also to my typist, Linda Raske; my Doctoral Assistant, Jessie Jo Johnson, whose advice, sincere interest, patience, and pre- editing were crucial. Also, I would be remiss not to mention David Lazarus and the other staff members in Government Documents at the Miller Nichols Library of the University of Missouri–Kansas City for their aid and patience. Naturally, all errors, oversights, et alius herein are the author’s. vii Preface This book is a revision of a previous study, supported by the Harry S. Truman Library, Independence, Missouri, USA, by myself and Willadee Gillan Wehmeyer, a graduate student at the University of Missouri–Kansas City, and now an instructor at Central Nazarene University, Olathe, Kansas. The Truman Library study involved several interviews, usually of several days in length, with both Leon Hirsch Keyserling and his wife, Mary Dublin Keyserling, in their home in Washington, DC. In the original study, both Chapter I and Chapter II were personal in nature. Chapter I involved the personal recollections of Willadee and myself concerning the Keyserlings. Chapter II involved the Keyserlings’ personal stories concerning events, personalities, con- versations between personalities, et cetera, that are of great interest to historians and biographers. However, in this book, both chapters have been deleted for a study of the economic events and of econ- omic thought that existed at the time of the Keyserlings’ youth; their years of education; and the economic realities of the United States in the pre-World War II and the post-World War II periods. Thus, this specific book is more for economists or economic stu- dents and interested lay persons, rather than historians and bio- graphers of the Truman Era. For those who wish to read the original study by Willadee and myself, it is available in Independence, Missouri at the Harry S. Truman Library, Independence, Missouri, USA. The original copy on deposit at the Truman Presidential Library included both a study of Leon H. Keyserling and Mary Dublin Keyserling by myself and Willadee Wehmeyer. After that study, Dr Wehmeyer completed her Doctoral dissertation on Mary Dublin Keyserling (Mary Dublin Keyserling: Economist and Social Activist, University of Missouri–Kansas City, 1994) which expanded upon her contribution to the original work on the Keyserlings. This present work includes only an analysis of Leon Keyserling by myself. The work on Mary Dublin Keyserling will be published separately by Dr Wehmeyer. It is, I believe, an important work in viii Preface ix relation to the Roosevelt-Truman eras, and of the women’s movement of that and later periods. W. Robert Brazelton 1 Biographical Background and Analytical Analysis Leon Hirsch Keyserling was born in Charleston, South Carolina, on January 2, 1908, the son of a prominent Jewish family; and lived his first eight years in St. Helena Island, South Carolina, near Beaufort, South Carolina. His father, William Keyserling, was a prosperous and influential farmer, growing and marketing fruits and vegetables. After Leon Keyserling’s graduation from high school in Beaufort in 1924, he went to Columbia University in New York City and became a student of Rexford Guy Tugwell. Later, he received a Law degree from Harvard University before returning to Columbia University to work on his Doctorate in Economics, which he never finished. However, during that time, he was busy helping Rexford Tugwell in his writing; and in doing his own writings. And later, as he often said, he was busy composing and lobbying for legislation concerning the Labor acts, the Housing acts, the Employment act, et alius, which, to him, outweighed a dissertation. Later, he became Vice Chair of the Council of Economic Advisors to the President and succeeded to its Chairmanship after Edwin Nourse’s resigna- tion, partly for Nourse’s refusal to testify on economic policy matters before Congress – a task Keyserling considered both a neces- sity and a duty in order to support the President’s economic policies before Congress and the Nation. Keyserling’s policies were policies of growth, as will be seen in later chapters. Many economists argue that a growing economy, like a rising tide, raises all ships. Keyserling recognized, however, that some ships would not rise as fast as others or, without aid, may not rise at all. Thus, economic growth was a necessary condition for 1 2 Designing US Economic Policy increasing wealth, but, by itself, was not a sufficient condition. As some sectors of the economy were weaker than others; or, as some groups were weaker than other groups, those groups must be select- ively helped by selective policies or selective controls. Thus, anti- recessionary, pro-growth policies should stimulate the overall economy and help lagging sectors as well by selective methods relating to those lagging sectors. This view of anti-recessionary policy was continued into Key- serling’s view of anti-inflationary policy as well. An inflation can be argued to be caused by an excess of demand over supply. This Keyserling translated as a lag in supply in relation to demand. Thus, even though anti-inflationary policy should dampen overall inflationary pressures, it should also stimulate the growth of supply of lagging areas, especially those areas of high priority (for example, housing and the jobs related to housing). Then, even though an anti-inflationary policy may be less lenient than would be an anti- recessionary policy, it must allow for selective sectors to continue to expand via selective controls or interest rates. For example, if housing was in short supply and widgets in excess supply, anti- inflationary policy should restrict the latter, not the former. Also, to Keyserling, the high interest rates caused by anti-inflationary policy were a high cost to the economy and would have to be paid over a long period of time by taxpayers and debtors to bond holders and creditors. Thus, in general, Keyserling believed that interest rates, even in an inflation, should be kept low, and, if increased, only where needed, selectively on a micro level, not a primarily or exclusively macro level. In light of Keyserling’s view of interest rates, Keyserling dis- approved of the “Accord” between the Federal Reserve and the United States Treasury in 1951. In the post-World War II, period, the Federal Reserve had “agreed” to purchase Treasury bonds at a set rate of interest. This essentially pegged the interest rate. The interest rate was low and allowed the Treasury to float its bonds without fear of rising interest rates which may be considered as allowing the Treasury to increase debt, which could result in inflation. The reason for this policy was to keep interest rates low; and to belie the fear that the post-World War II years would duplicate the stagnation of the 1930s and the instabilities of the 1920s. However, as expan- sion – not contraction – was the post-war reality, many believed that such a policy was not needed. Thus, after the Accord of 1951, Biographical Background and Analytical Analysis 3 the Federal Reserve no longer pegged the interest rate which meant that Treasury deficits (bonds) did not have a guaranteed market at a guaranteed interest rate.